Kwasi Kwarteng could borrow for the right reasons. These are the wrong ones

The billions of pounds of extra borrowing signalled by Kwasi Kwarteng in his not-so-mini budget can be justified as long as the money isn’t flushed down the toilet.

Funds for renewable energy projects or to boost skills training would generate a return over the next decade.

Kwarteng’s extra borrowing, on the other hand, will be donated to the better-off in society via the most generous tax-cutting budget since 1972, increasing inequality in a way not seen since the early 1980s and without any evidence such largesse will boost economic growth by even the same amount.

In a startling turnaround from the austerity promised by Rishi Sunak’s Treasury, Kwarteng says he will need to borrow an extra £72bn before next April and more than £250bn above previous forecasts over the next five years to fund his latest tax cuts and the energy price cap announced a fortnight ago.

Scrapping the higher 45p rate of tax will cost the government about £2bn a year, and that is cash the Treasury will never see again.

There is little chance it will attract the world’s high-flyers to Britain’s shores. The only evidence we have from a cut in the higher rate from 50p in 2012 was its effect on high-earning bankers, City lawyers and university bosses, who found they suddenly had the cash to spend on a second or third home.

There might be a small return to the exchequer from extra house buying, except that Kwarteng also increased the tax thresholds on stamp duty. He said the intention was to support first-time buyers in every region … yet the figures clearly show that most of the activity that will benefit is in London and the south-east.

Kwarteng’s reversal of this year’s national insurance rise and a 1p cut in the basic rate of income tax is a reward for hardworking people and to make work pay – two slogans we have heard many times before from Conservative ministers.

Yet, unless the chancellor reverses another of Sunak’s measures – the freezing of income tax thresholds for the next four years – most people on low to middle incomes will lose out from government tax policies.

most people on low to middle incomes will lose out from government tax policiesTUC economics expert Kate Bell was right to highlight how a British resident with a million-pound income will be more than £50,000 a year better off while someone on a £20,000 a year income will need to set their £150 gain against all the losses they face from high energy and food bills, the increased cost of travel and higher interest rates.

There is no shame in becoming a member of the 100% debt to GDP club. The US, France and Japan are among its members, and they all enjoy low borrowing costs.

Investors are beginning to doubt Britain and its ability to keep a lid on those debts. They are nervously selling the pound and dumping UK government bonds, sending their value crashing and doubling the interest rate since just last month.

Liz Truss wants to increase defence spending from 2% to 3% of GDP but without saying where the money will come from. She wants everyone to have lower tax bills without explaining how that will benefit the economy and broader concerns like climate change and the denuding of our environment.

Spooked by such a reckless attitude, investors may decide to keep selling UK plc.